Emerging

Shifting towards a medium-term perspective

nd  
Eco Emerging // 2 quarter 2021  
economic-research.bnpparibas.com  
3
CHINA  
SHIFTING TOWARDS A MEDIUM-TERM PERSPECTIVE  
At the end of the annual “Two Sessions”, China’s major political event, Beijing announced its economic targets for  
2
021 as well as the priorities of its new five-year plan. By setting this year’s real GDP growth target at simply “more  
than 6%”, which is lower than forecasts, the authorities are signalling that the economic recovery following the  
Covid-19 crisis is no longer the main focus of concern. In the short term, they will continue to cautiously tighten  
monetary policy and gradually scale back fiscal support measures. Above all, the authorities have affirmed their  
medium-term development strategy, which aims to boost innovation and drastically expand China’s technological  
independence.  
THE RECOVERY HAS PEAKED, ECONOMIC GROWTH  
FORECASTS  
REMAINS VIGOROUS  
2
019  
2020e  
2021e  
2022e  
The Chinese economy ended the year 2020 on a solid note with real  
GDP growth of 6.5% year-on-year (y/y) in Q4. Industrial production and  
exports continued to report robust performances that went beyond a  
simple catching-up movement. Meanwhile, private consumption and  
the services sector continued to close the gap after they entered the  
rebound phase much later following the Q1 2020 lockdown.  
Real GDP growth (%)  
6.1  
2.9  
2.3  
2.5  
9.2  
1.8  
5.3  
2.8  
Inflation (CPI, year average, %)  
Official budget balance / GDP (%)  
Central government debt / GDP (%)  
Current account balance / GDP (%)  
Total external debt / GDP (%)  
Forex reserves (USD bn)  
-2.8  
17.0  
0.7  
-3.6  
19.5  
1.9  
-3.2  
20.8  
2.1  
-3.0  
22.2  
1.7  
14.5  
3 108  
15.0  
16.3  
3 217  
16.3  
15.1  
3 272  
15.2  
15.8  
3 312  
14.5  
Economic indicators for the first part of 2021 are hard to interpret due  
to major base effects generated by the abrupt shutdown of activity in  
Q1 2020. In fact, in the first two months of 2021, the growth rates for  
industrial production, activity in the services sector, investment and  
retail sales were all abnormally high on a year-on-year basis (above  
Forex reserves, in months of imports  
e: ESTIMATES & FORECASTS  
TABLE 1  
SOURCE: BNP PARIBAS GROUP ECONOMIC RESEARCH  
3
0%).  
On the supply side, industrial production was still robust in the first  
two months of the year, in spite of a few signs of a slowdown in the  
automotive sector (which accounts for about 15% of industrial activity)  
resulting from the global shortage of microchips. Industrial production  
was largely supported by strong external demand. Exports rose 60%  
y/y in January-February 2021, driven by sales of technological goods  
and medical devices, as well as consumer goods and automotive parts.  
A DYNAMIC PROPERTY SECTOR, FOR HOW LONG?  
y/y, %  
y/y, % 15  
7
5
Property sales, 3mma (LHS)  
Average housing price (RHS)  
60  
12  
9
45  
Meanwhile, the momentum of domestic demand growth has lost some  
of its vigour at the beginning of 2021, with the notable exception of  
real estate investment. Private consumption of goods and services  
was curbed by new lockdown restrictions that were introduced in late  
January and February in response to a surge in contaminations in the  
regions around Beijing and Northeast China. In addition, the situation  
of households is still fragile, undermined by last year’s downturn in  
income and a weaker labour market. After falling continuously since  
spring 2020, the urban unemployment rate rose to 5.5% in January-  
February from 5.2% in December. Besides, the share of precarious jobs  
remains higher than pre-crisis levels. Finally, about 5 million migrant  
workers who lost their jobs in Q1 2020 (and are not counted among the  
official unemployed) have yet to find work again (286 million jobs were  
held by migrant workers at year-end 2020).  
3
0
6
15  
0
3
0
-
-
15  
30  
-3  
-6  
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021  
CHART 1  
SOURCE: NBS, MACROBOND  
Astoinvestment,enterprisesinthemanufacturingsectorhavebeenvery  
cautious in January-February. Manufacturing investment is nonetheless  
expected to gain momentum in the short term becauseexport prospects  
remain strong, industrial capacity utilization rates are high (78% in Q4  
Private consumption is expected to strengthen in the short term, if  
for no other reason than the improvement in the health situation. The  
epidemic is under control, lockdown restrictions have been lifted and  
the vaccination campaign – which was very slow through mid-March  
2
020, the highest level in three years) and corporate profits are on  
the rise. This goes along with a rebound in producer prices (+1% y/y  
in January-February, after 18 months of deflation), driven up by higher  
industrial commodity prices. Additionally, the authorities’ plans to  
increase investment in the technology sectors should rapidly become  
visible.  
is projected to accelerate. The authorities also seem to be planning a  
few temporary measures to encourage household spending.  
The bank  
for a changing  
world  
nd  
Eco Emerging // 2 quarter 2021  
economic-research.bnpparibas.com  
4
CAUTIOUS NORMALISATION OF ECONOMIC POLICY  
CHINA’S R&D SPENDING TO BE STRENGTHENED  
Following the annual plenary sessions of the National People’s Congress  
(
(
NPC) and the Chinese People’s Political Consultative Conference  
CPPCC) in March – two core institutions of China’s political system –  
5.0  
% of GDP  
4
4
3
3
.5  
.0  
.5  
.0  
the authorities announced their key macroeconomic targets for 2021.  
They are calling for real GDP growth of “more than 6%” and inflation  
of 3%. By setting an economic growth target well below forecasts, the  
authorities are signalling that the economic recovery is no longer the  
main focus of their concerns. They are enlarging the manoeuvring  
room of economic policy, notably to better combat risks in the financial  
sector.  
2.5  
2
1
1
0
0
.0  
.5  
.0  
.5  
.0  
In the short term, the authorities are aiming to contain growth in  
corporate and local government debt, which rose sharply last year  
South Korea  
OECD  
Japan  
China  
US  
EU27  
(
total domestic debt of the non-financial sector was estimated at 280%  
of GDP at year-end 2020, up from 255% at year-end 2019). Yet this  
must be orchestrated carefully, without undermining the economic  
recovery or aggravating the difficulties of corporates that have been  
hit by last year’s epidemic shock.  
2
003  
2005  
2007  
2009  
2011  
2013  
2015  
2017  
2019  
CHART 2  
SOURCE: OECD DATA (2021), GROSS DOMESTIC EXPENDITURES OF R&D  
Credit policy will be tightened cautiously, mainly by adjusting the  
prudential framework. Moreover, the authorities will slow infrastructure  
projects, which are mainly financed through domestic bond issues by  
local governments. Beijing very moderately scaled back quotas of bond  
issues authorised in 2021 for both the local and central governments.  
Total quotas were reduced to RMB 7,200 bn in 2021 from RMB 8,500 bn  
in 2020. In addition, the authorities also lowered the government’s  
and social development will certainly rely on technology. On the other,  
priority will also be given to bolstering the health and social protection  
system, wealth redistribution and reducing inequalities, and reforming  
the hukou permanent resident system to improve access to public  
services for the entire population.  
official” deficit target to 3.2% of GDP in 2021, from 3.6% of GDP in China’s ageing population was also identified as a major challenge.  
2
020. These cutbacks signal a very gradual and prudent withdrawal of The median age of the Chinese population rose from 30.8 in 2010 to  
38.4 in 2020 (similar to that of the US); the active population has been  
declining continuously since 2013; and the dependency ratio rose from  
fiscal and quasi-fiscal support measures in the year ahead.  
Investment growth in public infrastructure has already slowed in recent  
months, a trend that is bound to continue. In contrast, there were still  
no signs of slowdown in property investment in early 2021, despite  
new prudential rules imposed on real estate developers since August  
3
6.5% of the active population in 2010 to 41.4% in 2020. Measures are  
being explored to encourage natality, to postpone the retirement age  
which is currently only age 50-55 for women and age 60 for men) and  
(
to extend the average duration of university education. Improvements  
in education, coupled with investments in innovation, are aimed at  
boosting productivity. Lastly, the “quality of economic growth” will also  
be improved by developing green industries and promoting measures  
to fight climate change; Beijing’s goal is to be carbon neutral by 2060.  
2
020. Low domestic interest rates and ample household savings have  
continued to encourage real estate transactions. House price inflation  
even accelerated slightly in January-February (+2.7% y/y) after holding  
relatively stable since spring 2020.  
TH  
THE 14 FIVE-YEAR PLAN  
Completed on 1 April 2021  
Last month the authorities also unveiled the targets for the new  
Five-Year Plan for 2021-2025. At the heart of Beijing’s strategy is the  
development of the technology sector. China aims to sharply reduce  
its dependence on foreign technological knowhow and goods, and to  
become a world leader in the scientific field. Spending on research &  
development will be increased by at least 7% a year (after a 10% increase  
in 2020), with a special focus on boosting fundamental research efforts  
and increasing the number of patents with a high technical content  
Christine Peltier  
christine.peltier@bnpparibas.com  
(
from 6.3 patents per 10,000 residents in 2020 to 12 patents in 2025).  
This should accelerate China’s catching-up movement with the more  
advanced countries. Moreover, the manufacturing sector will have to  
continue to rise the value chain, and the share of the digital economy  
is projected to be increased from 7.8% of GDP in 2020 to 10% in 2025.  
The authorities have announced several measures to help corporates,  
including tax deductions and subsidies.  
The 14th Five-Year Plan also calls for other reforms, which were not  
spelled out in detail, but yet the country’s challenges and medium  
to long-term goals are well identified. Beijing is striving to achieve  
common prosperity”. On the one hand, China’s industrial, economic  
The bank  
for a changing  
world  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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